Sustainability has become a hot topic, not only for boardroom discussions and corporate strategy but also for setting government goals. That’s primarily because consumers in many countries now see environmental sustainability and social responsibility as two sides of the same coin. They seek brands aligned with their values.
But then, are companies listening? Sadly, not as much as expected. Only 40% of companies have identified initiatives to close their sustainability gaps, only 37% have aligned sustainability objectives with their business strategies, and only 33% have integrated sustainability objectives and metrics into business processes.
These statistics come from an IBM IBV (Institute for Business Value) and Oxford Economics study which polled 1,958 executives in 32 countries last year to map their sustainability readiness. “Lots of talk is happening, but not enough action,” the study reported. “While 86% of companies have a sustainability strategy, only 35% have taken action on that strategy.”
Fewer than 50% of the business leaders surveyed said they were willing to change existing business practices at the expense of profits to improve sustainability. And only 27% viewed sustainability as a core element of their business value. “These findings highlight the immense sustainability challenge companies face in converting intentions and pledges into reality,” the IBV report stated. “Achieving change at scale requires a fundamental reconfiguration of how value is created. And businesses need to lead—rather than follow.
What about the Asia-Pacific region? The effects of the changing climate are already being felt, and by 2050, between 600 million and one billion people could be impacted by lethal heat waves. According to recent McKinsey analysis, up to US$4.7 trillion of GDP in Asia is at risk annually from loss of effective outdoor working hours resulting from increased heat and humidity.
At least one regulator is calling it out. From Jan 1, 2023, funds sold to retail investors in Singapore under the label of meeting ESG (environmental, social and governance) standards will have to back up their claims with new disclosure and reporting guidelines issued by the MAS (Monetary Authority of Singapore). The name of the ESG fund should not be misleading; if it uses a term like ‘sustainable’, the fund should reflect this focus.
That’s even more pertinent as the COP27, or the UN Climate Change Conference, got underway (Nov 6 to 18) at Sharm El Sheikh in Egypt. According to the UN’s Intergovernmental Panel on Climate Change, CO2 emissions need to be cut 45% by 2030, compared to 2010 levels to meet the Paris Agreement goal of limiting temperature rise to 1.5 degrees Celsius by the end of this century. Is this achievable?
A report just published by UN Climate Change shows that efforts remain insufficient to limit global temperature rise to 1.5 degrees Celsius by the end of the century. Since COP26 in Glasgow, only 29 out of 194 countries announced tightened national plans. But then, although more must be done, some initiatives are worth nothing.
Many countries have or are developing corporate disclosure requirements around environmental impact. For example, in 2021 the EU banned single-use plastic. The UK plans to invest US$2.4 billion to promote cycling and walking. South Korea plans to double solar incentives to promote rooftop systems in homes and commercial buildings. China plans to build more than 78,000 electric vehicle charging stations.
What can companies do to help support governments in their sustainability efforts? For many companies, the bulk of the climate impact is outside of their direct control. “Many enterprises are therefore factoring in their top sustainability goals across different functions in the value chain,” notes a recent IBM IBV report. “From design to sourcing to manufacturing and across the supply chain, businesses are now engaging with suppliers to create low-carbon, easily recyclable products and services to reduce value chain emissions.”
The biggest impact is from the retail sector. That’s because retail and e-commerce have become one of the biggest consumers of packaging material, such as plastic and paper. Many retail firms are now adopting reusable delivery packs and recycled packaging material. IBV polled 1,900 business leaders in the consumer products and retail industries from 24 countries. The results reveal major shifts in consumer behaviour.
When compared to two years ago, 22% more consumers say environmental responsibility is very important when deciding on a brand; and 84% indicate environmental sustainability is at least moderately important. When asked about travel and personal mobility, 40% put environmental impact factors being more important than cost, comfort, and convenience.
About 50% believe a company’s climate change exposure affects its financial risk, and 92% of this group expect to invest, divest, or lobby fund managers to change investment mixes based on environmental factors and/or social responsibility in the next 12 months. This group is nearly 1.5 times larger than personal investors who do not see climate change risk as a financial risk.
Ten Point Plan
What can companies do to set up a long-term sustainable agenda? How can companies leverage technology to help support sustainability and ESR efforts? Here’s a 10-point plan of action recommended by IBV:
Infuse sustainability into the core of the business by creating and committing to long-term sustainability goals while identifying the use cases most likely to achieve those goals.
Move beyond sustainability as a tool to appease certain demographics by exploring opportunities for improvement to business processes, supply chain operations, and new growth opportunities.
Engage leadership at the highest level to create and own the vision. Formulate a core sustainability team across different organisational units with a common set of KPIs to measure and achieve success.
Consider platform-based solutions to limit the disruption to current business functions, and to help identify and mitigate regulatory discrepancies with lower investment, faster access, and increased accuracy.
Use technologies such as cloud, robotics, and AI for audit and compliance. AI solutions, if applied to large samples of data, can surface better insights and provide recommendations for improved compliance.
Explore sustainable methods to optimise and enhance business operations by using intelligent workflows to integrate decision-making into your current workflows.
Deploy ESG reporting software—from companies like Envizi—to capture your data in a single system of record. Streamline ESG reporting to meet internal and external reporting and compliance requirements.
Forge new partnerships and ecosystems for growth. The ecosystem could use blockchain, IoT and AI. This can help support partnerships among enterprises, governments, trade associations and markets.
Improve transparency to gain consumer trust by using product-level sustainability attributes. For example, by complying with a green trust mark or adding a 5-star green power consumption label on a product.
Accelerate innovations with new product design and development using renewable energy, recycled materials, and other sustainable options. Build sustainability with the entire product lifecycle usage.
The bottom line: The approach so far has been for companies to produce 100-page glossy sustainability reports. But now the focus needs to be on standardised metrics that can evidence decarbonisation milestones. By using a single system of record, data-driven software solutions can reduce cost, time and reporting burden so that organisations can focus on delivering ESG strategic outcomes.